No Change to Bank of Canada’s Overnight Rate

More and more it seems that The Financial Powers That Be have had bigger more aggressive plans than consumers were ready for. Back in 2017 and through most of 2018 the Bank of Canada was confident that several interest rate hikes in steady progression would be warranted in order to steady inflation rates. The Bank managed to slide in 5 consecutive hikes of 0.25% each, but then came to a halt in October last year when the economy didn’t keep pace. This month it appears that the Bank continues to be apprehensive and has maintained it’s overnight rate at 1.75%.

The Bank released a statement last week which said, “Recent data suggest that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast in its January Monetary Policy Report.” Whoops. For this reason they have softened their stance on further interest rate increases. It was expected that Canada would experience a temporary economic slow down in the start of 2019, but it has turned out to be “sharper and more broadly based…it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.”

Alberta in particular has been lagging compared to the rest of the country. Last year the year-over-year inflation rate for the country as a whole was 1.4%, but in Alberta it was only 1.2%. In November and December 2018 we actually experienced a deflation rate of -0.5% and -0.1% respectively. In December 2018 and January 2019 inflation was flat, coasting along at 0%.

In a way, this economic crawl is good news for existing and potential mortgage owners. “The softening rate outlook will put downward pressure on bond yields, causing fixed rates to drop as we enter the spring homebuying market,” said James Laird, president of CanWise Financial. “Variable rate holders should be pleased, as any increase to prime rate will be further in the future than the Bank has signaled in prior rate announcements. Overall this announcement will be helpful to first-time homebuyers looking to enter the housing market this spring.”

This is good news to those who have not been able to get into the housing market since the 2017 mortgage stress test was introduced, but hope to be able to get moving once the test is done away with. This is a real possibility as the Regulator for OSFI (Office of the Superintendent of Financial Institutions) stated off the record at a meeting of Canadian Mortgage Influencers that the stress test has worked “too well.” Intriguing.

Decreasing fixed rates, unchanged variable rates, and the possibility that the OSFI stress test will go the way of the dinosaur? Silver linings all around! If you’d like to talk to a Calgary Mortgage Broker about how this news affects your current mortgage, or how it affects your options as a potential home buyer, please contact us today!